The Economic Case Against The Death Tax: No Purpose, No Reason, For The Death Tax

August 9, 2010

Due to a legal quirk, the death tax is scheduled to come back to life in 2011. The renewed death tax would once again inflict serious harm on family businesses, workers and the economy. Congress should act before the end of the year to repeal this economically harmful tax permanently, says Curtis S. Dubay, a senior analyst in tax policy at the Heritage Foundation.

Outside the narrow special interests that benefit from the death tax, there no longer exists any justification for the tax. When Congress passed the death tax in 1916, it was originally intended to serve two purposes: (1) raise revenue for the federal government and (2) prevent the build-up of wealth in a concentrated number of families. The death tax serves neither of these purposes today, says Dubay.

The death tax is no longer a vital source of federal revenues:

In 2008, it raised about $24 billion, just above 1 percent of total federal tax collections; this is down considerably from 1940, when the estate tax raised more than 5 percent of all federal revenue.

Nor is the death tax necessary to prevent the accumulation of wealth in a limited few families.

In today's modern marketplace the well-off are more likely to accumulate their fortunes by creating new and innovative products demanded by the rapidly expanding global marketplace than through inheritance:

The ability to make vast fortunes in the United States is not restricted to family lines or a lucky few; statistics on income show that each American has ample opportunity to earn high incomes and accumulate wealth while doing so.

Statistics also show that Americans have an equal chance of moving down the income scales.

The estate tax is not necessary to ensure a more equal distribution of wealth. The opportunity to earn high incomes, and the equally high probability of earning lower incomes, work well enough on their own, says Dubay.

Source: Curtis Dubay, "The Economic Case Against the Death Tax: No Purpose, No Reason, for the Death Tax," Heritage Foundation, July 20, 2010.